POINTERS: Africa's Growing Market-Potential for Palm Oil

The expected growth in African crude palm oil (CPO) output has yet to match potential. After early and encouraging signs of a pickup in palm plantings a decade ago, visible in the 2014 /15 season when CPO production on the continent rose by an estimated 7 percent year-on-year, momentum seems to have waned. Output expansion has since deteriorated with no expansion forecast in the 2020 and 2021 season. As a result, Africa’s supply deficit has reached a record 6 million tonnes in 2019 with further downside risks in the near term.
For instance, our initial forecast for Liberia to become a major player in Africa’s CPO industry by 2030 seems to have been stunted by what has been termed difficult times for the palm oil industry in Liberia and which has significantly affected the ability of players in the sector to develop palm plantations at the rate at which they would have wanted. To a large extent, Liberia contextualizes the swathe of challenges that blemish the sector on the continent. Stakeholders in Tanzania, which is looking to reduce its nearly 400,000 tonnes of imported CPO annually, acknowledge that the local oil palm value chain is underdeveloped and faces several confounding constraints including low yields and a lack of investment in the industry as well as a suboptimal functioning market.
Overall, African output has remained relatively flat over the last three seasons excluding marginal improvements in Cameroon, Cote d’Ivoire and Nigeria. And while Gabon has become a more visible player in the regional palm market, it is growing from a very low base and will require consistent improvements in plantings to become a major exporter in the region.
As a result of Africa’s urbanisation and rising income levels, consumption of CPO is growing at a brisk pace, although the relatively weak uptake of processed foods means CPO demand in Africa somewhat lags India. Still, Africa accounts for almost 12% of global CPO consumption vs 4% of global CPO production. Egypt and Kenya represent large and growing markets for CPO in Africa, with South Africa, Tanzania, Ghana, Ethiopia, Djibouti, Cote d’Ivoire also substantial import destinations.
Elsewhere, the disruptive nature of the pandemic on several related CPO markets, including biofuels, and the associated liquidity and supply chain constraints imposed by the coronavirus are likely to further hamper prospects for output growth in the near to medium term. Encouragingly for the sector in Africa, policymakers and local investors continue to view the sector constructively and several initiatives to boost productivity have been deployed—or are in the pipeline—albeit with potentially varying degrees of success.

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Questions & Answers (4) :

EMMANUEL Quayson

4 years ago

Thank you Mr. Ofon for your presentation. Can you please throw more light on the demand for biofuels, particularly, biodiesel in Africa? Is Africa discussing introducing biofuel blends into its energy mix and how does the medium to long term future look for biofuels in Africa. Second, is there a particular reason why the Africa-originated palm oil cannot have high yields in Africa but does well in Southeast Asia?

Abah Ofon:
Dear Emmanuel, Thank you very much for this question. In my opinion, the jury is still out as to the viability of biodiesel in Africa, perhaps because of the natural competition with food demand. That being said, there is a view that the production and marketing of biodiesel on the continent could help to diversify energy away from fossil fuels but also because it is more environmentally friendly. There are some initiatives that have been launched in Africa in this regard, one of which was piloted in South Africa as it looked to introduce biodiesel into its ground-handling operations at the country's international airport. But again, these are but tentative steps. To circumvent some of the challenges of biofuel production in Africa, some have argued for the use of low-grade lands that lie idle and for the cultivation of jatropha as feedstock which will help meet the double objective of energy sufficiency and economic growth. With regard to your question on yields, I think it�s a combination of several factors, weather (which is more conducive in Southeast Asia), farming practices (where fertiliser application rates for instance are better in Southeast Asia) and legacy/cultural preferences where small farmers in Africa have not adopted widespread production of higher oil yielding fruits due a strong preference for the traditional dura. Warmly, Abah
4 years ago

George Teh

4 years ago

Dear Mr Ofon With reference to your slide #3, can you provide reasons for the gaping gaps between African producers' CPO yield viz-a-viz the world average? Thank you. George Teh

Abah Ofon:
Dear George, thanks for your question. The weather has major implications for yields in Africa where there is typically a long dry season which tends to affect soil moisture. Additionally, relatively low rates of fertiliser application in Africa have contributed to stunting crop yields in the region with applications rates much lower than those in Southeast Asia. Differences in sun exposure also account for much of the remaining difference in yields between West Africa and Southeast Asia. Optimal temperatures range between 20 and 28 degrees Celsius with an adverse effect bunch development if temperatures fall outside this range. I hope this helps and do not hesitate should you require more information. Very best wishes Abah
4 years ago

Nur Fairuz

4 years ago

Will the AFCFTA slow trade between Malaysia and Africa, and how can the Malaysian CPO sector benefit from this trade agreement?

Abah Ofon:
Dear Nur, The AFCFTA is a unique opportunity to reorient the trading relationship between Africa and Malaysia. the AFCFTA commits African economies to the removal of trade barriers on imports (tariffs and quotas), which will reduce import costs and, consequently, consumer prices and is meant to lay the foundation for the establishment of a continental customs union, which will advance regional economic integration on the continent and further promote trade. What this means for Malaysian companies interested in Africa is that they must now consider the African region as a single trading bloc, no longer as small fragmented markets. In that context, they must therefore adopt new access strategies that reflect this new paradigm. Very best indeed, Abah
4 years ago

Muhammad Fazari Bin Mohd Radzi:
Dear Mr. Ofon and Ms. Nur Fairuz, Thank you for your presentation regarding Africa's growing potential for palm oil. If I may add to your comment, MPOC had done an assessment with regards to the opportunities presented through the AFCFTA. You can find out more on MPOC's website under the Market Highlights section or through the link below: http://mpoc.org.my/african-continental-free-trade-area-afcfta-its-impact-on-edible-oil-trade/ Thank you and best regards Fazari
4 years ago

Abah Ofon:
Dear Fazari, it is great that MPOC has conducted an assessment of the AFCFTA for the benefit of players in the sector and I think we should continue to guide the market with regard to this truly monumental development in the Africa/Malaysia trade dynamic. very best, Abah
4 years ago

Shaheen

4 years ago

The African country is pushing to increase investment in oil palm plantation expansion. The issue is whether the African community is supporting this initiative as this initiative will involve land clearing and it will affect livelihood and culture of your community. Supporting the investment is the issue market access. For export, the frontier that the palm oil business is going is on sustainability. Has African palm oil moving towards international standards of production. Take the case of Liberia where big Malaysian company has invested there and exit. Where is the market for their palm oil if the project is successful.

Abah Ofon:
Dear Shaheen, You are absolutely correct. A core concern for the industry is the environmental impact of palm plantations, and the trade-off between expanding plantation area to meet growing demand and the environmental and social pressures that it creates. It must be the case that the direct and indirect effects of the creation of oil palm plantations are taken into account and reviewed as part of an environmental and social impact assessment. Some projects in Africa have stalled because of a lack of consensus between investors and the community. In other cases, investors have been responsible and sensitive towards environmental and social interests, and planting is progressing. This goes to show that while it is a difficult ask, it is indeed possible to strike the balance between African consumption and African production. All my very best, Abah
4 years ago